6. Packaging deductions (amounts for CDs and cassettes): 20%
for cassettes and 25% for CDs.

7. Independent record company:

Two types:

Truly
independent has no attachment to a major.

Semi-independent
is distributed by a major.

8. What is a point? 1% = ONE PERCENT.

9. Recording Advance: Artist or producer is given an amount
of money and expected to turn in a completed and satisfactory master. Producer
or artist keeps any money not spent on the recording.

10. Recording Fund or Budget: Artist or producer is allotted
an amount of money and is expected to turn in a completed and satisfactory
master. In this case, the record company pays all of the bills from this fund
and any money not used does not have to be recouped by the artist.

11. Free goods deductions: Typically 15%. These free goods
are used for promotion.

12. Cross-collateralization: All advances or recoupable
monies for any and all albums under one record deal are considered together. In
other words, if the first record doesnŐt recoup and you make a second record,
the artist must recoup the money advanced for both records before they can
begin to earn royalties.

13. Reserves: Typically 30% or more. This amount is held in
order to account for returns.

14. Standard return privilege: In the past, the returns were
allowed to be 100% of shipment. Currently, retail stores are allowed to return
20% of the stock. Any amount over 20% is charged a restocking fee.

15. Profit & loss: Every artist has a profit and loss
sheet detailing the amount of advances issued and amount of money recouped.

16. Black position: Black means you are profitable.

17. Red position: Red means you are loosing money. The black
and red terms come from accounting practices that use black and red ink to
denote profit and loss respectively.

18. Standard breakage deduction: 10%. A&M records still
computes this deduction on contracts even though CDs donŐt break as often as
records.

19. New artist: Someone who has sold less than 250,000
records.

20. Gold album: An album selling 500, 000 or more.

22. Platinum album: An album selling one million copies or
more.

23. Floor: The smallest advance amount stipulated in an
artistŐs record contract.

24. Ceiling: The largest advance amount stipulated in an
artistŐs record contract.

25. Controlled composition: Any composition in which the
artist has a financial stake. The term control refers to the artistŐs control
to make decisions about the mechanical rate of the song because he/she has a
financial interest or benefit in the composition.

26. Standard controlled composition reduction: This is now
standard in record contracts and is a 25% reduction. Therefore, your mechanical
royalty is reduced from .08 cents to .06 cents.

27. Controlled composition reduction for record club CDs:
This is also standard in record contracts and is a 50% reduction. Therefore,
your mechanical royalty is reduced from .08 cents to .04 cents.

28. Prospective escalation –A bump up in your royalty rate based upon reaching a certain
sales quota goal. This escalation happens after the artist has reached this
sales figure. There is no change in rate for any units sold prior to achieving
the negotiated sales figure.

29. Retroactive escalation: If a contract states that the
royalty rate retroactively increases with the number of CDs sold, then the
artist would paid the higher rate after reaching the stipulated amount and
would be paid the higher rate from record #1. In other words, if your contract stipulates
a 16 point royalty rate that increases retroactively to 17 points after the
sale of 500,000 CDs, the artist would be paid 16 points for all CDs up to
500,000. Upon selling 500,000, the artist would be paid 17 points for all
future CDs and one extra point (16 +1) for the CDs from 1 to 499,999. The term
retroactive means Ňfrom the beginning.Ó

30. All in deal: This refers to a situation where the
artistŐs points include the amount for producerŐs points. For example, if your
producer receives 3 points and your artist deal is for 16 points, then you are
really earning 13 points and the producer is earning the other 3 points.

31. Commercially satisfactory recording/master: A master
accepted by a record company because they believe it will sell is termed a
commercially satisfactory master.

32. Options: The record companyŐs way of keeping successful
artists by extending their contracts. The number options or additional records
is spelled out in the contract and is at the whim of the record company. If you
sell, the record company has the right to Ňexercise the optionÓ and make you
record another CD. If you donŐt sell, they have the right to Ňnot exercise the
option.Ó

33. Mechanical royalties: This money is paid to the
publisher at the time of pressing. This money is not recoupable and is due when
records are printed, not when records are sold. This money is upfront money
and, because it is not recoupable, companies invented the controlled
composition clause in order to ct down on upfront expenses.

34. Maximum statutory mechanical royalty rate for a song up
to 5:00 in length: 8 cents.

35. Statutory mechanical royalty rate for a song longer than
5 minutes long. Be able to compute the full mechanical royalty owed for a song
longer than 5 minutes.

For songs longer than 5:00, the extra mechanical royalty
rate is1.55 cents for every minute or fraction thereof.

36. Royalty base = SRLP – (20%) packaging deduction

37. Recoupable moneys: Moneys the artist needs to earn
before they are paid royalties. ItŐs a lot like paying off a loan.